B Law & Tax
08 January 2024

Tax Advisor: Fiscal Transformation in Madrid: From 100% Tax Relief to a New Paradigm

Since 2008, the Community of Madrid has maintained a complete 100% tax relief on the Wealth Tax, arguing that this tax is perceived as unfair and ineffective, in line with the majority of tax doctrine and comparative law, where most European Union and OECD states do not apply it.

However, Law 38/2022, dated December 27, introduces a new temporary solidarity tax on large fortunes, complementary to the Wealth Tax at the national level. This tax is not subject to transfer to the Autonomous Communities and aims to levy an additional fee on the assets of individuals exceeding 3,000,000 euros.

The new tax has revenue and harmonization objectives, seeking to reduce disparities in wealth taxation among different Autonomous Communities, especially those that have partially or fully relieved the Wealth Tax.

Despite the Community of Madrid appealing this tax to the Constitutional Court, the appeal was dismissed, and the tax remains in force. According to state data, in 2022, 10,302 taxpayers in Madrid declared the tax, generating revenues of 555 million euros.

Given that the temporary solidarity tax on large fortunes has been declared constitutional and is in effect, it is proposed to temporarily modify the current relief of the Wealth Tax. The modification would consist of establishing a variable relief so that Madrid taxpayers affected by the temporary tax pay it within the Wealth Tax. Those not affected by the temporary tax will continue to be exempt from the Wealth Tax.

 

 

Temporary Tax and Wealth Tax Relief

Starting from January 1, 2023, modifications are made to the Consolidated Text of Legal Provisions of the Community of Madrid regarding taxes transferred by the State, approved by Legislative Decree 1/2010, of October 21.

During the Temporary Solidarity Tax on Large Fortunes, the general relief of the wealth tax does not apply. Instead, taxpayers can apply a regional relief based on the difference between the total full tax liability of their wealth tax and that of the Temporary Solidarity Tax on Large Fortunes.

 

 

In summary:

Since 2008, the Community of Madrid has maintained a complete 100% relief on the Wealth Tax, arguing its perception as unfair and ineffective, in line with the majority of tax doctrine and comparative law. However, Law 38/2022 introduces a new Temporary Solidarity Tax on Large Fortunes, complementary to the national Wealth Tax, without transfer to the Autonomous Communities, with the aim of levying an additional fee on assets exceeding 3,000,000 euros.

Although the Community of Madrid tried to challenge this tax in the Constitutional Court, the appeal was dismissed, maintaining its validity. In response, a temporary modification of the Wealth Tax relief is proposed from January 2023, establishing a variable relief for taxpayers affected by the temporary tax, while those unaffected will continue to be exempt from the Wealth Tax.

 

 

 

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